Technical View: Nifty forms a ‘Hammer’ like pattern; outcome of exit polls eyed

The Nifty50 which opened with a gap on the higher side witnessed profit booking near its crucial resistance level of 10,300 but then bulls took charge and pushed the index above 10,250. The index made a ‘Hammer’ like pattern on the daily charts on Thursday.

A Hammer which is a bullish reversal pattern is formed after a decline while Hanging Man is a bearish reversal pattern. In this pattern, market witnesses a significant selloff towards opening but manages to recoup some of the losses and closes near the opening level.

Formation of a bullish candle after two successive bearish candles suggest that market is now factoring in a favourable victory of BJP in the upcoming poll results next week.

The index closed well above its crucial short-term moving averages which is a bullish sign. But, it remained volatile throughout the trading session. For the bullish momentum to continue, the index has to surpass its crucial resistance level placed around 10,350 levels.

The index opened at 10,229 and rose to an intraday high of 10,276. It slipped to an intraday low of 10,141 before closing the day at 10,252, up 59 points.

Investors are advised to create long positions only on a breakout above 10,350 which would open room for the index to retest 10,490 levels.

“The Nifty50 registered Hammer kind of formation on the charts as bulls put up a moderately brave face as they appear to have sensed an opportunity to buy around 10150 levels ahead of the event,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“This kind of buying may be in anticipation of a favourable outcome for the markets which is nothing but a victory for the BJP. However, technically speaking Nifty50 which is moving in a well-defined down sloping channel since the highs of 10490 need to register a breakout and sustain above the said channel whose value is placed around 10350 levels,” he said.

Mohammad further added that such a breakout shall signal the end of a correction which is in progress since November highs. “Traders are advised to look for such a sustainable breakout post the exit poll result and create bets accordingly,” he said.

India VIX moved up by 2.93 percent at 16.40. VIX is at highest levels in the last ten month. Rising Volatility is ruling out for any smooth ride in the market wild swings might continue next week as well.

Note: Index and VIX have negative co-relation so requires a cool off in volatility to get some stability.

On the options front, maximum Put open interest was seen at 10000 followed by 9800 strikes while maximum Call OI was seen at 10500 followed by 10400 strikes. Fresh Put writing was seen at 10000 while Call writing is intact at 10400 and 10500 strikes.

“The Nifty continued to form lower highs – lower lows for the third consecutive session but formed a Bullish Hammer candle on the daily chart. It witnessed strong recovery and momentum in second half of the session then finally closed with the gains of around 60 points,” Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“Overall index has got stuck in a broader trading range of 10033 to 10409 and now trading at the middle of the band,” he said.

Taparia further added that on the immediate basis it has to hold above 10300-10330 zones to witness an up move towards new lifetime of 10490 while on the downside supports are seen at 10094 then 10033 marks.